Some solutions for further attracting Foreign Direct Investments in Binh Dinh province in the coming time

I
UPPSALA
t'NIVERSlTV
OF
ECONOMICS dfe 8USINFSS
Wi:
iUNfVKRSITET
'
" ' '^
MASTER THESIS OF
MPPM
Some solutions for further attracting
Foreign Direct Investments in
Binh
Dinh
province in the coming time
Auilwrs:
- Nguyen
Thanh Vinh
'
Nguyen
Thi Lun
Anh
- Do Thi
Thuy
Van
Superviors:
- Lars
Torsten
Eriksson^
MSc,

PhD
- Nguyen Tien
Dung«
PhD
Class: MPPM Intake
2,
group 14
Hanoi,
September
2011
UPPSALA UNIVERSITY
UPPSALA UNIVERSITY OF ECONOMICS & BUSINESS, VNU
UNIVERSITET
EP*^
re
•>-«*'-*
MASTER THESIS OF MPPM
Some solutions for further attracting
Foreign Direct Investments in Binh Dinh
province in the coming time
Authors: -
Nguyen
Thanh Vinh
- Nguyen Thi Lan Anh
- Do Thi Thuy Van
Superviors: - Lars Torsten Eriksson, MSc, PhD
- Nguyen Tien Dung, PhD
Class: MPPM Intake 2, group 14
Hanoi,
September

2011
THESIS SUMMARY
1.
Title of thesis:
"Some
Further Solutions for Attracting Foreign Direct Investments (the
"FDI")
in
Binh Dinh Province in the coming time".
2.
Academic level: Thesis of Master Program in Public Management.
3.
Author: Nguyen Thanh Vinh, Nguyen Thi Lan Anh, Do Thi Thuy Van
4.
Instructors: Vietnam supervisor: Nguyen Tien Dung, PhD
Uppsala supervisor: Lars Torsten Eriksson, MSc, PhD
5. Date of completion: August
20n.
6. Purpose
Capital is a very important resource for development, and it is particularly needed in developing
countries to tackle the cycle of poverty: low income
—*•
low accumulation
-^ low
technology
—>•
low
productivity
-^
low income, etc Hence, the fast and efficient attraction of domestic and foreign capital

resources, especially the foreign direct investment has significance for the development of a country,
particularly developing countries like Vietnam.
Binh Dinh Province is a potential area in the key economic zone in the Central Part of Vietnam.
Seeing the importance of the
FDI
for the development, Binh Dinh has actively attracted the
FDI
by
various measures but the results of attraction are too modest compared to its
potentiality;
therefore,
it
is required to find solutions to overcome through research of the situation of FDI attraction and causes
of achievements and limitations in attracting the FDI in Binh Dinh.
7.
Method
- Using the model of Nguyen Manh Toan in respect of factors affecting the FDI attraction as a
theoretical basis for assessing causes of success and limitations in attracting the FDI in Binh Dinh.
- Using the method of analysis-synthesis, the method of qualitative and quantitative analysis to
analyze and evaluate collected statistics, reports and other data.
- Using the method of interview of some related objects for gathering more data.
8.
Results
and conclusions
Through the thesis analysis we come to a conclusion that the FDI that has increased
rapidh
in
Binh Dinh in recent years compared to previous periods is mainly because of:
-
Having a favorable geographic location.

- Having a synchronous infrastructure system.
- Having advantages of setting up the Nhon Hoi Economic Zone, 8 industrial zones and 37
industrial groups.
1
- Having plentiful resources and potentiality.
- Quite strong development of the provincial economy in recent years with the GDP growth on
average of 12%.
- Issuing many policies with investment incentives, rendering administrative reforms actively;
simultaneously paying more attention to investment promotion activities. Political security and social
order is stable.
- Enjoying benefits from the results of expanding foreign relations between Vietnam and other
countries around the world, as well as increasing improvement of
the
law system,
mechanisms,
general
policies of Vietnam with respect to encouraging direct foreign investments
However, the amount of attracted capital is little, not corresponding with the potentiality of Binh
Dinh and not contributing much to the development of
the
area because of:
* Objective reasons
- The impact of the global financial crisis and economic slowdown. Limited capacity of some
investors
- The strong competition of some localities with comparative advantages better than those of Binh
Dinh
* Subjective reasons
- Binh Dinh is not really ready for planning and sites for investors.
- The infrastructure of Binh Dinh is not really convenient to attract investments.
- Administrative procedures in several areas relating to in\eslment remain cumbersome,

troublesome, causing delays and congestions
- The location declaration is not clear
- The
investment
promotion is inefficient.
- The analysis results of the thesis as stated above show why Binh Dinh is a province with
potential in attracting the FDI but the attraction results are modest. Those are the basis for seeking
solutions to o\ercome this situation. According to us the two factors namely the unclear location
declaration statement and inefficient investment promotion are the two causes of most powerful
impacts which need deeper research
9.
Recommendations
for future study
The most fundamental limitation of the thesis is only focusing on the assessment of the FDI in
Binh Dinh. hardly considering impacts of this capital resource on the economy and society of
Binh
Dinh, especially negative ones. This can affect the firmness of the subject significantly because
although the FDI is essential for the development, it is not because of which the attraction is made at
all
costs regardless of its negative impacts. The FDI attraction also requires a selection and prudent
strategies to both attract this capital resource quickly and limit its negative impacts
10.
Contribution of the thesis
- The thesis adds two factors of clear positioning messages and effective investment promotion to
improve the theoretical model of Nguyen Manh Toan in respect of factors affecting the FDI. In our
opinion, in a current globalization age with increasingly fierce
competition,
these two factors are
important in fast FDI attraction of
a

region, a nation.
- The thesis has raised some measures to promote the FDI attraction as a basis for policy-makers in
Binh Dinh to refer in the course of making their decisions.
TABLE OF CONTENT
L
Introduction
1.1.
Aim of study
.
1.2.
Method of study
^
1.3.
Scope and demacrations
o
2.
Theory
o
2.L Some basic concepts
o
2.1.1.
The concept of Investment
9
2.1.2.
The concept of foreign investment
10
2.1.3. The concept of foreign direct investment
]0
2.2.
The

role of foreign direct
investment
capital to
Vietnam's
economy
11
2.3.
Main factors help attracting foreign investment 13
2.3.1.
Economic motivation group
13
2.3.2.
Resources motivation Group 14
2.3.3. Infrastructure motivation Group
15
2.3.4. Mechanisms and policies motivation Group
16
3. Analysis
17
3.1.
Overview of Binh Dinh
17
3.2.
Reality
in attracting foreign direct investment
of
Binh Dinh in
the
period 2006 -
2010

17
3.2.1.
The number and scale of projects 17
3.2.2. Investment Structure
18
3.2.3. Investment Partners 19
3.2.4. Form of Investment 20
3.2.5. Overall Assessment
21
3.3. The cause of the achievements and limitations in attracting FDI in Binh Dinh in the past time 24
3.3.1.
I he cause of the achievements 24
3.3.2. The cause of the limitation 26
3.4. Some recommendations on resolutions to boost attracting FDI in Binh Dinh in the coming time 3
1
4. Conclusion 36
5. References 39
1.
Introduction
For any nation to have rapid economic growth and development, that nation must have various
resources such as labour, natural resources, land, science, technology, capital
In
these
resources,
capiuil
is a quite important resource for developmem, and it is particularly needed in developing
countries to tackle the vicious cycle of poverty: low income
—
low accumulation
-^

low technological
level
->
low productivity
-^
low income ' Therefore attracting both domestic and foreign
investments, especially foreign direct investments (FDI) quickly and effectively is important for
national development, especially for developing countries. This can be seen in the achievements of
Vietnam's
socio-economic development since its renovation started in
1986:
those achievements were
significantly contributed by FDI and the foreign-invested economic sector. In fact, FDI has become an
important source of capital for investment and development that promotes the shift of economic
structure towards industrialization and modernization; introduction of many new industries and
products; improved management capacity and technology; more employment: expansion of the export
market; and, development of
Vietnam's
external economic relations with the rest of the world. The
highly-growing foreign-invested economic sector has become part of the
economy,
has increasingly
closer tics with the other economic sectors, and makes increasing contribution to the Gross Domestic
Product.
Because
it is legalized and encouraged to develop by the state, the Party and the
State's
guideline states that
^Uo
facilitate the foreign-invested

economic
sector in its
development,
export-
orientation, construction of socio-economic infrastructure, attraction of modern
technology,
and more
employment.
The legal and economic
environments
should be improved to attract foreign investments
strongly"".
Realising the importance of FDI to its development in the context that its internal capital
accumulation remains limited, Binh Dinh, a province in the economic focal area in Central Vietnam
(which includes the provinces of Da Nang, Hue, Quang Nam, Quang Ngai, Binh Dinh), has been very
actively attracting and using FDI in many ways. However, FDI attracted by Binh Dinh over the recent
years remains fairly modest, mainly in the form of small projects, which are inadequate to its
potentials. As a result, the positive sides of FDI have not been seen clearly, and their contribution to
the provincial socio-economic development is less than expected. This situation attracts much
attention from researchers, the provincial leaders and its
people,
who all wonder why the province,
with its potentials, can not attract as much FDI as expected. Therefore, how to provide effective
solutions to further attract FDI has become an
urucnt
issue in Binh Dinh. especially in the context ot
' David
licgg,
1992,
p. 403-404

' Vietnam
C'ommunisl
Party.
2001,
p.
99
increasingly serious competition for FDI in the country, the region and the world and while the
demands for investments in socio-economic development still largely depends on external sources.
Based on this practice, we choose the thesis theme,
''Some
Solutions for Further Attracting Foreign
Direct Investments in Binh Dinh Province in the Coming
Time",
to study and propose effective
solutions for further attracting FDI in Binh Dinh for its socio-economic development in the coming
years.
The thesis comprises three main parts. Part I shall mention theories on FDI as the fundamental
knowledge and discuss the role of FDI in national development. Based on the data collected through
an analysis of the reality of FDI attraction in Binh Dinh (reports, statistics,
inteniew^s,
etc), Part II
will
figure out the causes and limitations of the activity. In the final part of the thesis, we shall propose
feasible solutions for further FDI attraction in Binh Dinh, based on the analysis and evaluation of the
achievements
and limitations of its FDI attraction we have conducted in Part II.
1.1. Aim of study
This thesis is aimed to find out feasible solutions for further FDI attraction for Binh Dinh Province,
based on an analysis of the achievements and limitations of the
province's

recent FDI attraction (since
2006) and the causes of those achievements and limitations.
The thesis is also aimed to emphasize the role and position of FDI attraction for the development of
a region or a nation. It shall not develop more theories on FDI but further confirm the need to attract
FDI for development; and, it will provide some basis for the policy-makers and governments in Binh
Dinh to
make
feasible policies for quickly attracting this important source of capital.
As a result, the main aim of this thesis is to answer the question, What solutions should be carried
out
lo
further FDI attraction in Binh Dinh Province?
It will not be easy to answer this question if there is no basis.
Therefore,
the
thesis will answer the
question through raising and answering two other equally important questions:
-
What is the reality (achievements and limitations) of FDI attraction by Binh Dinh over the recent
years?
- What are the causes of the achievements and limitations of FDI attraction by Binh Dinh?
The two questions are perhaps the most central in the discussion of FDI attraction in Binh Dinh and
to answer the main question mentioned above. The validity of the thesis is largely dependent on
answering the two questions because the two answers will be found through the
FDI
reports and
statistics prepared by the authorities and. frequently
imprecise,
comments of some experts. It is
important that the

information
is analysed and evaluated to serve as an objective basis for providing
feasible solutions that help readers see an overall picture of the FDI attraction in Binh Dinh and that
can be applied to further the FDI attraction in Binh Dinh in the coming time.
1.2. Method of study
To answer questions raised in this thesis, a variety of documents were used. For the theory, in order
to discuss and provide basic knowledge to help readers comprehensively understand about foreign
direct investment and its importance in developing countries, a number of textbooks and books are
used to clarify such as
^^Vietnam
external economic
curriculum'"
of Nguyen Anh Tuan, "Vietnam
external economic
curriculum"
of Nguyen Van Trinh, "Foreign Direct Investment in Vietnam -
current situation and solutions" of Tran Xuan Tung And then, the book named "Factors affecting
the attraction of FDI into a locality" of Nguyen Manh Toan will help provide a theoretical model as a
basis for evaluating the reasons of achievements and limitation in attracting FDI in Binh Dinh.
Relating to analyzing of FDI in Binh Dinh, data, reports collected by Binh Dinh Department of
Planning and Investment, PMU of Economic Zone, Center for Investment Promotion and the book
named "Binh Dinh
lO-year
socio-economic development" of Binh Dinh Statistical Office are
especially the key sources. Finally, the articles such as "Approach to Marketing in FDI attraction" by
Mai The Cuong and interviews conducted with a number of FDI entrepreneurs, officials working in
this field in Binh Dinh is a tool help us evaluate the reasons for achievements and limitations in
attracting FDI in Binh Dinh and give out solutions.
The most important question of the thesis is what are the causes of the achievements and limitations
of attracting FDI in Binh Dinh? To answer this

question,
we used theoretical model of Nguyen Manh
Toan and research of Tran Xuan Tung. It means we highly consider factors that Nguyen Manh Toan
and Tran Xuan
fung
mentioned in their theory as crucial factors and concentratively use them to
answer the causes of achievements and limitations of a nation or a region.
However,
preliminary
analysis of the thesis shows that there are still other very important factors besides the factors
mentioned above. Therefore, we will add the latter to partly complete this model.
To find out solutions to strengthen FDI attraction by Binh Dinh.
First,
sufficient information on
IDI
such as the total attracted FDI amount and number of projects, the capital
structure,
the investment
partners, the provincial policy, etc should be collected to analyse and evaluate the FDI development
realitv
in the province. We have selected the information through the statistics and reports ot the
provincial authorities such as the Department of Statistics, Department of Planning and Investment,
Centre for Investment Promotion, PMU of Economic Zones The collected infonnation is generally
fairly reliable and refiects the IT)I reality in Binh Dinh.
In the next step to figure out the answer to the thesis question, we shall analyse and evaluate the
causes of the recent achievements and limitations of FDI attraction through the evaluation reports of
the provincial investment
promofion
authorities, articles collected from the investment webpage and
the Department of Planning and Investment webpage of

the
province. The data collected in this step is
less reliable because they are based on subjective judgments of the authors. The data of this kind have
not been much collected perhaps because there are certain
difficukies
in accessing information (e.g.
getting access to evaluation reports of the authorities in Binh Dinh). To overcome
this,
we plan to
conduct some interviews of some provincial leaders, investment promotion agencies and FDI
businesses of the province. In our opinion, the interviews
will
be very important for collecting data
and answering the thesis question; they will provide the most authentic picture of
FDI
attraction in
Binh Dinh, and they will be a useful information channel for figuring out the causes of the recent
FDI
situation in the province. Moreover, consulting the intended interviewees of possible solutions for
further FDI attraction in the province will lay the foundation for the final solutions that we will
provide in this thesis.
To carry out the study, we shall analyse, summarize, with a fiexible combination of quantitative and
qualitative analysis to answer the question. The collected data shall be thoroughly analysed and then
summarized to find out the answer. Through quantitative analysis, we shall find out the answer
through the figures of FDI gained by Binh Dinh such as the number of projects, the total
amount,
the
IDI
structure, etc and how they contribute to the provincial socio-economic development
Qualitative analysis shall be very useful in evaluating collected reports and personal views on i

1)1
attraction in the province.
When starting analyzing the thesis contents and collecting data, we considered using some other
methods, one of which is survey through questionnaires, which can help collect reliable and objective
data. However, we believed that conducting such a kind of survey requires certain knowledge of
developing a questionnaire that we are short of Moreover, every step from developing the
questionnaire,
identifying the objects, means; material, human and time resources takes so much time
and effort that they may slow
dowTi
the progress of
the
thesis while the results may be low due to some
reasons mentioned above. As a result, we replaced it with direct
inter\ievvs
of some stakeholders,
which is
less
objective and restricted in number of interviewees due to the time limit of the thesis but
easier to implement. Moreover, interviewing those
directlv m
charge of FDI attraction and investors
will help go straight to the question of the thesis.
8
us
Therefore, interview, analysis and summary, quantitative and qualitative analysis,
will
help
answer the thesis question as easily as possible. We believe that they are the most suitable methods to
find the answer to the thesis question.

1.3. Scope and demacrations
FDI is a broad category relating to a lot of contents. First and foremost, we must limit the scope of
this thesis to make clear the presentation and analysis because of the lack of time and resources. As a
result, we only focus on the research and reports directly related to the reality of attracting FDI in Binh
Dinh, such as the amount of capital, number of project, capital structure We also study factors
involving to assessments about the causes of achievement and limitation in attracting FDI in Binh
Dinh. Consequently, we ignore the reports about impacts of
FDI
capital to socio-economic
development in Binh Dinh where we conducted the study; otherwise, we use with a minimum amount
of it in order to emphasize the importance of attracting FDI as well as to lay the foundation for other
solutions.
Another limitation is the thesis
only
focus on analyzing and evaluating the situation of attracting FDI
in Binh Dinh in the period from 2006 up to now. Actually, FDI has been attracted to Binh Dinh before
2006,
but we only study from 2006 onward because this is the year the Investment Law 2005 took
effect"*.
The research is conducted from this time onward in order to avoid making the thesis too large,
rambling; making sure that the true problem and data could be comprehensively
understood,
furthermore, this method of study is also aim to evaluate how the performance of the Investment Law
2005 results in attracting FDI in Binh Dinh.
2.
Theory
2.1.
Some basic concepts
In this section, we will present some basic concepts relating to FDI in order to lay the foundation tor
the study and provide readers the necessary approach on the topic we will discuss in the thesis.

2.1.1.
The concept of
Investment
There have been many concepts of investments.
It
is often used broadly to mention to the cost, the
sacrifice of the resources at present (time, effort, money ) to certain activities of people in order to get
the greater benefits in the future. There are some concepts of investment which are often considered as
following:
' Investment
Law 2005 adjusted both foreign investment and domestic investment without discrimination. Before 2005,
Viet Nam exits two investment laws:
dome^siic
investment law and foreign investment law.
invesimeni
Law 2005
is
a
development in the reform of investment in Viet Nam
compared
lo the previous investment
laws
Concept 1: the term "investment" can be understood as synonym with
"expendimre",
"sacrifice".
Since then, "investment" can be considered as expenditure, the sacrifices something at present (money,
labor, fortune and brainpower) to get beneficial results for the investor in the
future^
Concept 2: Investment is
acUvities

to use invested capital and resources in a relatively long time with
an aim to get profit or socio-economic interests. The period of time here is usually from 2 years to 50,
70 years or
longer^
Thus,
investment is to spend resources on a certain activity to get greater benefit in the future.
2.1.2. The concept of foreign investment
The concept of investment is a terminology of investment activity in general, so foreign investment
will bear all the characteristics of investment in general except for some distinguish characteristics: (i)
investors have foreign nationality, (ii) the investment element is moved out of a country, (iii)
investment can be money, facility for manufacture, capital goods but in foreign currency . Thus, the
fiow of capital moving from country to country is known as foreign investment .
2.1.3.
The concept of foreign direct
investment
Foreign investment is considered in many forms such as official development aid (ODA);
commercial credit sources; capital investment from the sale of stocks and bonds for foreigners
(Foreign Portfolio Investment -
FPI)
and capital of foreign direct investment which is called FDI .
This thesis will only focus on FDI capital.
Foreign direct investment has some notable characteristics as following:
(i)
the foreign investors
must
deposit
a minimum amount of capital in accordance with the law of receiving country in order to
have the right to directly manage the operation of business; (ii) the investor directly manage, operate
and take responsibility for the operation of the project consistent with the capital they spent.
1

he
division of business results for the parties based on capital contributions: (iii) foreign direct investment
is usually done through the following methods: constructing new
business,
buying the whole or part of
an operating entity, purchasing shares of the company stock to manipulate or merge and joint business
on the basis of business cooperation contracts .
According to Tran Xuan Tung
(2005.
p.21), foreign direct investment can be generally defined as
follows:
'T-oreign
Direct Investment is an international movement of capital in the form of capital tor
'
Tran Xuan Tung, 2005, p 18
•
Iran Xuan Tung, 2005, p 18
'TranXuan
Tung. 2005,
p
20
'
Nguyen Anh
fuan,
el
al
2005, p 225
'
Nguven Anh
luan,

el al 2005, p 226
" Nguyen
Van Trinh et al, 2006, p 359
^
production. Investors transfer capital to invest in another country and directly participate in
management and organization of production, taking advantage of capital, technology, and
management experience for the purpose of getting profit".
2.2.
The role of foreign direct investment capital to Vietnam's economy
With an aim to emphasize the importance of attracting FDI capital, we use this section to generally
analyze the role of
FDI
capital to the development of Vietnam.
Many studies and statistics in Vietnam recently shown that the foreign capital investment sector have
increasingly confirmed the important role in Vietnam's economy and had certain impacts to many
fields of the economy, namely:
- First, Foreign investment is an important supplementary to the investment capital to meet the
demand of social development and economic growth. Capital is always mentioned in theories of
economic growth. An economy needs more capital to grow faster. If domestic capital is not enough.
the economy will need to attract more external capital including
FDl"\
Vietnam carried out the
renovation with a very low starting point.
Thus,
in terms of capital demand, foreign investment is an
important supplementary to the domestic investment capital to meet the demand of social
development. In the period
1994
-
1995,

FDI capital has made up 30 - 31% in the total invested capital
in
Vietnam.
1
his rate has decreased since 2004 to
15.5%
of the total social investment. However, from
1994
- 2004, the FDI sector has been growing in GDP proportion. In 2004, the
FDI
sector contributed
15.2%
to GDP proportion, compared with 6.4% in 1994".
-
Second, Foreign investment has contributed to the transformation of the economic structure,
enhancing the industrial production capacity. The industrial growth rate in FDI sector is higher than
average growth rate of the country, contributing to restructure the economy toward industrialization
and modernization, partly help increase the density of industry in GDP from 23.79% in 1991 to 40% in
2004.
Currently, the FDI sector accounts for about
35%)
of industrial production value of the country.
In some localities (Binh Duong, Dong Nai, Vinh Phuc ), this ratio is 65-70%. Foreign direct
investment
has created some new kind of industries and strengthened the
capacitv
of many industrial
branches such as oil and gas, information technology, chemicals, automobiles, motorcycles,
steel,
electronics and household electronics, agricultural and food processing, footwear, textiles In the field

of agriculture - forestry - fisheries, FDI has created some new products with high technical content and
many new plants and animals as well. Foreign direct investment help the service sector to improve
'°
Nguyen Anh Tuan, 2005, p 228-232
'' Nguyen Thi Tue Anh, 2006, p
10-1!
quality and develop faster, especially in telecommunications industry, tourism, real estate business,
transportation, finance,
banks '^
-
Third,
foreign investment promotes the advanced technology and managerial secret handover to
Vietnam. Attracting FDI from multinational companies
will help
a country opportunities to acquire
advanced technology and management secret that these companies have accumulated and developed
over years with great expense. Actually, FDI has contributed to speed up transferring advanced
technology into Vietnam, developing some important economic sectors of the country such as
telecommunications, exploration and exploitation of petroleum, chemical, electronic mechanical
engineering, information technology, automobile, motorcycle The technological level of the FDI
sector is generally equal or greater than that of Vietnam at present and equal to that of countries in the
region. Businesses in the FDI sector almost apply effective management methods connected and
infiuenced
by modem management system of the parent company. Consequently, technology and
business capabilities are transferred to almost all components of the economy thank to the connection
between FDI businesses and domestic ones' .
- Fourth, Foreign investment has considerable contribution to the state budget and macro-economic
balances. Along with the development of FDI businesses in Vietnam, the contribution of this sector
into state budget increase year by year. From
1996-2000.

oil revenue reached 1.49 billion USD,
equivalent to 4.5 times higher in comparison with that of five years ago. In the
2001-2005
periods,
revenue in FDI sector was over 3.6 billion USD, averagely increasing 24%/year. FDI has positive
impact to major balances of the economy such as budget balance, improving current account balance,
international payments balance by transferring funds and expanding the source of foreign currency
indirectly through international visitors, tax on
land
use, buying machinery and raw materials
- Fifth, Foreign investment has contribution to
improve
the quality of human resources, creating
more jobs. As FDI businesses aim to exploit favorable conditions to reduce production costs by hiring
more local employees. In the process of hiring, business will provide vocational training course which
is usually advanced and brand-new to labor in developing countries. This helps create more skilled
labors for host country. Not only popular labor, but local experts also have opportunities to work and
attend professional training course organized by FDI business. According to Vietnam General
'^PhanHuu
Thang,
2008
"PhanlluuThang.
2008
'•'PhanMuuThang,
2008
Statistics Office, FDI sector has directly generated about 1.2 million jobs and millions jobs indirectly
in 2008, contributing to reducing unemployment and poverty in
Vietnam'^
- Sixth, Foreign investment help approach and extend international markets, promote capacity to
export goods and

services \
Through attracting FDI from multinational
companies,
domestic
businesses having business relationship with these companies will
also
participate in the process of
regional labor allocation. The receiving country therefore has opportunities to participate in global
production networks which are favorable to boost exports. In recent years, exports growth rate of the
FDI sector is always higher than the average export growth rate of the
country'.
In
1991,
export
turnover of Vietnam reached 2 billion USD, meanwhile this figure was 26.5 billion USD in
2004,
making
13.5
times higher compare with that of 1991. Export value of
FDI
sector is increasingly in
total export value of the country, from 4% in
1991
to 54.6% in
2004'^
2.3.
Main factors help attracting foreign
investment
As mentioned above, FDI in Vietnam has played an enormous role in the industrialization and
modernization of the country. However, the real tendency in Vietnam recently showed that foreign

investment capital fiows are concentrated in some localities with competitive
condition'^.
For this
reason, based on theoretical models of Nguyen Manh Toan and some other studies, this section will
concentrate on analyzing the factors that help attract foreign direct investment in a locality or a region
in order to answer the question why foreign investors must seek the place to invest. That is the ground
for assessing the causes of achievement and limitations in attracting FDI in Binh Dinh.
Nguyen Manh loan's research figured out four crucial factors for foreign company to decide their
investment location, including: the economic motivation group, resource motivation
group,
infrastructure motivation group, and policy and mechanism motivation group.
2,3.1.
F.conomic
motivation group
As foreign investors aim to get profit, so they always pay attention to any factors that profit them .
- Factor of scale and potential to develop market
This is one of important factors in attracting foreign investment. This factor is calculated after
population and CiDP. In term of market size, the total value of GDP - a measurement index for the size
of the economy - is often paid attention. Additionally, GDP growth rate is also a good signal for
attracting
11)1,
many investors with a
strateg.v
"take a short-cut, wait in front" will also bravely invest
"
Nguyen Anh Tuan, 2005, p 234
'"
Nguyen Anh Tuan. 2005. p 233
'^
Nguyen Thi

luc
Anh, 2006. p I
1
"
Nguyen Manh
loan,
2010,
p 271
"
Tran Xuan Tung. 2005, p 38
in fields which are expected to have more opportunities to rapidly grow in the future and extend into
adjacent markets. When choosing a place to invest in country, foreign investors are also aimed to the
areas with densely
populafion
which is their potential
market^^.
- Factor of cost
Production cost is also factor that investors pay much attention, including cost of raw
materials,
labor costs and the cost of assistance services. Production cost reduces lead to the increase of profit at
any interest rate . Many studies show that the majority of foreign companies invest abroad is to
exploit the potential and advantages of cost. Of which, low labor cost is often considered the most
important factor for investors before making their investment decisions. For developing countries, a
low labor cost is an opportunity to attract foreign direct investment in the past decade. When labor cost
rise up, FDI lend to drop sharply. In addition, the FDI activities allows the companies to avoid or
minimize transportation cost, so businesses can improve their competitiveness ability; directly keeping
control of raw material supply with cheap price; receiving incentives policy in
investment,
taxes as
well

as the cost of land use. Besides transportation cost and other kinds of cost, the investment
motivation of transnational companies is to avoid the effects of tariff and non-tariff barriers, as well as
significantly reduce import and export costs
^.
2.3.2. Resources motivation Croup
The characteristics of natural resources, population, and geography are important keys that affect
to profit or investment risk and attract the attention of foreign investors when seeking place to invest.
- Human Resources
1
he human labor is one of the
'^inputs"
factors which is indispensable of the economic activity and is
also very important factors to decide the level of
exploitation,
utilization, protection and regeneration
of other resources. The
workforce,
especially its
quality,
has significant role in affecting labor
productivity, the efficiency and quality of the production
process"-\
As a result, when deciding to
invest in a new company in a country especially in developing countries, foreign companies also aim
to exploit human resources which is relatively young and abundant in these countries. Normally, in
developing countries, unskilled labor resources are always abundant and can satisfy the needs of the
company. However, the increasing of science and technology presently, foreign companies are eying
to countries with higher qualified human resource that can meet their needs. Not only the factor of
^'^
Nguyen Manh Toan,

2010.
p 271
^' Tr^an
Xuan Tung. 2005, p
39

Nguyen Manh
toan,
2005, p 272
''
Ho Chi Minh National Political Institute, 2004. p 69-70
14
quantity and quality, but also motivation and attitude of workers are important factors for investor to
consider and seek place to
invest^"*.
- Natural resources
Natural resource is the initial physical conditions of most manufacturing industries. The abundance
of raw materials with cheap price would be conditions to boost profits and actively promote attracting
foreign investment. For example: With Southeast Asian Nations (ASEAN), the exploitation of natural
resources is an important target in the investment of foreign companies in the past
decade^-\
- Geography
A country, an economic region with a favorable geographical location will help investors easily
access to adjacent market, remarkably saving transportation cost and evidently become an
indispensable factor for investors when choosing their
location^^.
2.3.3.
Infrastructure motivation Group
Except for foreign investors specializing in the field of infrastructure, the development of economic
infrastructure of a country or a locality is always the physical conditions inducing investors to quickly

make investment decision and implement memorandum projects, helping them reduce transportation
costs,
maintaining and developing normal business with their
partners'^
Infrastructures system
includes technical infrastructure and social infrastructure:
- Technical Infrastructure
Quality of Technical Infrastructure is very important to the flows of FDI into a country or locality. A
fully-constituted technical infrastructure system including
roads,
railways, aviation, electricity supply
network, water, telecommunications and other utility services is priority of foreign investors. In
addition, the availability of industrial
parks,
export processing zones with modern infrastructure is the
attractive point for foreign investors.
In
fact,
in the decade '80s and '90s. many countries have built
export processing zones to attract investment and Shenzhen export processing zones (China) is a
successful example of this model. Technical infrastructure is not just about roads, bridges, warehouses,
yards
but also includes other support services such as banking, auditing firms, consultants If these
necessary supports are missed, the investment environment will be seriously affected. Not only that,
the outcome of the local industrial enterprises, the presence of industry support, the existence of
"
Nguyen Manh Toan.
2010.
p 272
^'

Nguyen Manh
loan.
2010, p 272
^^
Nguyen Manh Toan.
2010.
p 273
^'Nguyen
Thi
Kim
Nha.
2001
15
reliable partners for foreign companies to co-operate are the very important requirements to be
considered^**.
- Social Infrastructure
Besides technical infrastructure, investment environment is significant influenced by social
infrastructure. Social infrastructure includes health systems and health care service for people,
education and training system, recreation and other services. Moreover,
socio-moral
values,
custom.
religion,
culture.,
also help make up the common picture of the social infrastructure of a
country
or
locality^"^.
2.3.4. Mechanisms and policies motivation Group
Foreign investment flows to countries is not only determined by economic factors, but also

influenced by political factors. The stability of the
macro-economy,
along with political
stabilitv
is
considered very important , since political and economic stability help ensure that host government
will carry out policies on capital possession, priorities and orientations policy for development
(investment structure). These matters are the most concerned of investors because it remarkably
influence on risk factors in
investment
. Along with political, social stability, investors also need a
stability and effectiveness of laws system. A complete and reasonable system of policies that
ensure
the consistency of policies to attract investment, other incentives policies and
support^
will made host
country to be more attractive to foreign investors" .
^"
Nguyen Manh
loan.
2010.
p 273
^'Nguyen
Manh Toan, 2010, p 273
'" Nguyen
Manh Toan,
2010.
p 273
''
Tran Xuan Tung. 2005. p 38

^"
Tor example, tax
incentives,
credit supports
'' Nguyen
Manh Toan, 2010. p 274
16
Figure 1: Nguyen Manh loan's model of the factors affecting FDI
1 aclors influence
to
attracting
fDl
1 ^
•
•
w
Economics
Resources
Infrastructure
I'nhcy
• Potential
market
Advantage of cost
Human resources
' Natural resources
Geography
fechnical
infrastructure
Social infrastructure
Socio-poliiic slahilii)

Preference
and support
Source: Nguyen Manh Toan.
2010,
p
2"4
3.
Analysis
3.1.
Overview of Binh Dinh
Binh Dinh is a coastal province in the South Central Vietnam, being bordered by Quang Ngai
Province to the North, by Phu Yen Province to the
South,
by Gia Lai Province to the East, and by
South China Sea
(liast
Sea) to the Fast;
1,065km
south of Ha Noi. 686km north of Ho Chi Minh City,
300km south
ol^
Da Nang City, and 300km east of Bo Y International Border Gate (in
Kon 1 uni
Province) to Laos.
Binh Dinh has a total natural area of 6,025knr and population of about 1.6 million people. The
administrative structure includes 01 city and 10 districts, of which are three mountainous districts. Quy
Nhon - provincial capital city is the first-grade city with an area of
284.28kni'
and a population of
more than 260,000. Binh Dinh has a tropical monsoon climate, average temperature of

27^C,
average
humidity 80%, and total average sunny hours per annum of about 2,000, average rainfall of about
2,000
mm
which is suitable for rural.
industr\'
and tourism
de\'elopment""^.
3.2. Reality in
attracting
foreign direct investment of Binh Dinh in the period 2006 - 2010
3.2.1.
rhe
number and scale of projects
Table 1: Number and scale of FDI projects in Binh Dinh tVom 2006 to
2010
Number of projects
2006
6
2007
8
2008
5
2009
4
2010
6
^*
"Binh Dinh Province called tor investment".

hinhJinhinvest
online
17
Registered capital (million USD)
267.5
72.5
48.7
57.12
150.042
Source: Department of Planning and Investment of Binh Dinh, 2006, 2007, 2008, 2009,
2010
After the 2005 Investment Law took effect, the 2006 witnessed the considerable increase in
attracting foreign investment to Binh Dinh with six FDI projects registered. These six projects with
total registered capital up to USD 267.5 million, of which the most notable project is the Vinh Hoi
resort of
ITC
Condor Development Company LLC, now is
ITC
Spectrum LLC (USA) with the capital
of 250 million USD which is licensed by Nhon Hoi Economic Zone Administration.
In 2007, the province licensed 8
FDI
projects with total registered capital of USD 72.5 million. Till
the end of 2007, Binh Dinh has attracted 383 million USD of FDI capital in 29 projects.
In 2008, foreign investors were
''significantly
hit"
by the impact of financial crisis and global
economic slowdown leading to a lot of many difficulties. Consequently, they have to restructure and
adjust their own business, not extend to new areas or fields of investment. Many investors come to

Binh Dinh to learn and submit application for investment certification, they but can not deploy the
preparation for
investment
soon due to limited capacity. However, Binh Dinh continued attracting 5
FDI projects with registered capital of 48.7 million USD, decreased 32.8% compare with 2007 (72.5
million USD).
In
2008, 04 projects were revoked investment license, including 03 projects outside
industrial zones and
01
project in the Nhon Hoi Economic Zone. Up to 2008, the province had 32 on-
going FDI projects with total registered capital of over 409 million USD.
In 2009, although affected by the economic downturn, Binh Dinh attracted 4
FDI
projects more with
total registered capital of 57.12 million USD. The number of projects is less but the registered capital
is higher compare with 2008. In
2009.
2 FDI projects were revoked investment license; so Binh Dinh
had 34 existing FDI projects with total registered capital of 470.75 million USD, including 28 projects
of
100%
FDI and 6 joint ventures or joint businesses.
In 2010, 6 FDI projects were licensed with registered capital of
150.042
million USD. it is 96.52%
higher compare with the same period last year, of which the Economic Zone Administration licensed 2
projects with total capital of
131
million USD, Binh

Dinli
Provincial Committee licensed 4 projects
with total capital of
19.042
million USD.
Up to now, Binh Dinh has 40 on-going
FDI
projects with total capital of 621.475 million USD,
including 33 projects with
100%
foreign capital and 7 joint
\entures
projects. Among which, the
Economic Zone Administration license
10
projects with total capital of 504.91 million USD. Binh
Dinh Pro\ incial
C\)mmittee
license 30 projects with registered capital of
116.565
million USD.
3.2.2. Investment Structure
18
Table 2: Number of projects divided by sectors
Total
Agriculture and forestry
Fishery
Mining
Processing industry
Construction

Commerce and reparation of engine vehicles
Hotel industry
Transportation, logistic, post
Contractions relating to asset business
Education and training
Entertainment and sport
Tourism
Activities to serve public, personal demand on
other service
Number of
projects
46-
1
4
7
14
2
1
5
1
3
1
1
1
4
Total capital
(million USD)
643.642
!
14.1

9.2
35.4
135.592
8.0
0.6
256.35
1.8
43.0
6.0
1.2
125
7.4
Source: Binh Dinh Statistical office,
2010,
p
132
Analyzing the structure of investment by sector shows that
FDI
projects has been existing in many
fields of the economy in compliance with requirements of industrialization - modernization of Binh
Dinh. Among which, the areas attracting investors the most is industrial processing with 14 projects,
followed by mining industry with 7 projects, and hotel
industr>
with 5 projects. FDI capital
concentrates almost on the industry and services sectors that accounted for
85.8%.
3.2,3.
Investment Partners
Table 3: FDI by countries of origin
Total

- Japan
- United State
- Malaysia
- Taiwan
-
HongKong
- Canada
- South Korea
-Holland
- New Zealand
-
Gerinanv
- Britain
- Australia
- China
- Thailand
- Singapore
Number of
projects
46
4
4
1
2
5
-)
3
1
2
6

3
4
4
2
1
Total
CTpital
(million USD)
643.642
16.7
263,25
1.8
34
44.6
9.0
11.6
1.8
15.1
33.792
3.4
2.3
63.3
5.0
5.0
"
Including the six FDI projects have been revoked investment license
19
France
- Russia
8.0

125
Source: Binh Dinh Statistical office, 2010, p
133
Implementing the guideline "multilateralism, diversification of cooperation " and "Vietnam wants
to be friends with countries in the region and the world " of the Viet Nam Communist Party and the
Vietnam Government which is concretized through the system of in investment law, Binh Dinh has
attracted investors from
17
countries and territories with total registered capital of 643.6 million USD.
Many investors coming from potential economic countries such as the United States. Japan, China,
Korea, Germany, Britain, Russia, Singapore, Australia, France , of which Germany take the leading
status with 6 projects, then come Hong Kong with 5 projects, and Japan, America, Australia. China
with 4 projects per each. In term of capital scale, the United State takes the leading status with 263
million USD, Russia ranks the second with 125 million USD, followed by China (63.3 million USD),
Hong Kong (44.4 million USD) and Germany (33.792 million USD).
3.2.4.
Form of Investment
Ihe
most popular forms of foreign investment in Binh Dinh is 100% foreign investment which
occupying 78.7%
ol'the
projects and 77% of
the
total registered
capital''.
Projects of 100% foreign
invest capital have increased gradually in recent years because in early stages, the procedures for
implementation are also requires more paperwork and very complex. Additionally, foreigners have
less understanding of internal situation of Vietnam and Binh Dinh, especially social and law
conditions, so they often face difficulties in procedures to obtain sufficient conditions for the

construction and implementation of investment. In such these circumstances, the majority of investors
choose to form joint ventures businesses, considering that Vietnam side taking responsibility for the
legal procedures in
business'
operation will be more effective. This form tends to increase year by
year, represented by the following chart:
'"
Department of Planning and
Investment
of Binh Dinh,
2010
Figure 2: Forms of foreign direct investment in Binh Dinh
(Unit: Project)
• 100% foreign investment
D Joint venture
2008
2009
2010
Source: Department of Planning and
Investment
of Binh
Dinh,
2008, 2009, 2010
Data on chart 2 shows that in 2008, there were 23 projects with 100% foreign investment capital, in
2009 the number increased to 28 projects and 33
projects
in 2010, making average growth rate
21.7%.
Meanwhile, joint ventures decreased from 9
projects

in 2008 to 7 projects in 2010 because the joint
venture have tendency to change to
100%
foreign capital. This phenomenon should be understood at
many aspects. Reality of attracting foreign investment shows that the number of 100% foreign
investment increase proved a better investment environment; it also means that investors
feel
secure to
invest and operate with a promising environment in Binh Dinh. However, there are still opposite ideas
considering that the reason originated from the forced relation and not on a par among partners.
Vietnam side has limited capacity while foreign partners are companies and groups with strong
economic potential. Moreover, the latter are pursuing global business strategies, so there are great
differences in view points and business strategies. In addition, Vietnam Investment Law with principle
of consensus is rigid, making restrictions for Vietnam side in their decision to get profit.
3.2.5.
Overall Assessment
The above figures show that since the implementation of
the
Investment Law 2005, attracting FDI to
Binh Dinh from 2006 to 2010 have achieved positive signal with 29 projects, making up 63% in
comparison with a total of 46
projects^^
attracted from 1992 up to now. Registered capital in this
period is 595.862 million USD, occupying for 92.57% of the total registered
FDI
capital so far ,
increasing by 13.8 times compare with that of 2005 backward. Not including 6 revoked projects for
^'
Including the six FDI projects have been revoked investment license
"

Including the registered capital of
6
FDI projects have been revoked investment license
21
several different reasons, Binh Dinh has attracted 40 FDI projects up to now. Although the number of
FDI
projects accounted for only 23.8% of all investment projects in Binh Dinh, total registered capital
of these projects is very high as 621.475 million USD, equivalent to 13,050.975 billion VND. making
up nearly half of total capital of
143
on-going projects of the whole province. It means that the amount
of capital by FDI projects accounts for approximately half of total investment capital in Binh Dinh up
to
2010
. With
17
countries and territories investing in Binh Dinh, along
with
a large proportion of
100%
foreign investment capital (compare with the form of joint venture) in various invested sectors
from agriculture, service, processing industry to
education,
this thing has indicated that foreign
investors trust in Binh
Dinh's
investment condition.
Along with attracting more and more FDI capital investing in Binh Dinh. foreign direct investment
has contributed positively to the provincial economic development, namely:
Table 4: Contribution of FDI sector in Binh Dinh from 2007 to 2010

Year
Contriution
to Export
turnover
(million USD)
Contribution to state budget (million USD)
limploycd
l.abor
(person)
2007
12.3
1.576
844
2008
13
2.57
1,798
2009
15
2.69
1,951
2010
-
2.85
2,602
Source: Binh Dinh Planning and Investment Department, 2007, 2008, 2009,
2010
In 2008, the industrial production value of FDI sector reached 90 billion VND, exports tumover was
about
13

million USD; these were 103 billion USD and
15
million USD respectively in 2009. In the
first six months of 2010,
these
number were
312
billion VND
(13"o
higher than the
same
period last
year) and 6.6 million USD (equivalent to 2.8% of total turnover of the whole provincial exports) .
- Binh Dinh is a province with abundant labor force but has yet exploited and used much. People at
working age in the province are nearly a million, in which more than 70% are agricultural labors .
With such a potential source of labor, the province has set the goal to create more jobs for labors as
receiving foreign direct investment. To achieve this goal, the province has encouraged foreign direct
investment business to use local employees.
If
FDI business in Binh Dinh attracted only 844 new
employees in 2007, it was 2,602 in
2010'*'.
Also,
FDI
businesses also indirectly create jobs and income
for many workers such as construction workers, workers in
services
sector (sales personnel, logistics,
transportation ). Although the number of employed local labors makes up a small percentage in
"Department

of Planning and
Investment
of Binh Dinh, 2010
'^
Department of Planning and
Investment
of
Binh
Dinh. 2007. 2008. 2009.
2010
^'
Binh Dinh Statistical
olficc,
2010. p 72 •
o-
u
r^-
u w u
*' This lluurc
did not
include
the
numtu^r
of seasonal workers that have been hired by
FDI
bussmesses
in
Bmh
Dinh.
It

the>
are
considered,
the number of aUracted workers by FDI sector in Binh Dinh are higher.
^^
potential labor force of the province, it is a positive resolution to solve the urgent labor matter at
present. In addition, FDI sector has
also
been giving Binh Dinh opportunities to have a generation of
good managers, improving the quality of labor force in order to quickly reach the level of management
and international skills when working in modem equipped businesses. Moreover, FDI sector helps
change thinking of people, they must always teach themselves and improve their knowledge so as to
find a good job in FDI business with higher salaries.
- Another objective of attracting FDI is to create revenue for the state budget. As the beginning of
operations,
FDI
projects in Binh Dinh have contributed a certain proportion to the revenue budget for
the province. Although it is still modest, the revenue of
FDI
sector is increasing year by year; the
revenue of
FDI
business contributing to the provincial budget occupies a large proportion of the total
provincial annual revenue.
It
was
1.576
million USD in 2007 and 2.85 million USD in
2010.
Although FDI capital attracting to Binh Dinh in recent year is more and more positive and has

certain contribution to socio-economic development, it have yet to exploit
effective
the pro\incial
potential, and
the
amount of capital is relatively small compared with some other localities in the
country (see table 5 below).
Tabic 5: 10 localities attracting most foreign direct investment in the period
1988-2007
(Update to 22/12/2007 - only valid projects)
1.
Ho Chi Minh
City
2.
Ha noi
3.
Dong nai
4.
Binh duong
5.
Vung tau
6.
Hai
phong
7.
Phu yen
8. Da nang
9. Vinh phuc
10.
Long an

Projects
number
2,938
987
918
1,570
159
268
39
113
140
188
Capital
16,583.370,767
12,423,918,902
11.666.711,568
8.468,605,783
6,111,349,896
2.600,681.471
1,975,576,438
1,872,820,789
1,866,195,001
1,864,378,294
Registered
capital
7,069,929,314
5,621.923.639
4.655,587,285
3,428.765,978
2,397.533.861

1,115,836,920
628,858.655
842,041,457
648,526.192
680.049.003
Implementation
capital
6.347,487.062
3.592,425,986
4,152,591,894
2,078,979,706
1,267,669,334
1.273,511,670
123.827,280
184,751.090
438.759.582
423.043.982
Source: Phan
IIuu
Thang, 2008
Besides,
the majority of these FDI projects in Binh Dinh are small scale. There is still a lack of large
scale projects especially projects in the industrial sector which can be a driving force for promotion of
economic development and transformation of economic structure. The annual contribution ot
FDI
projects is less than
1%
of the provincial GDP. accounting for 3.6% of the province's industrial
production. Budget revenue from FDI sector in recent years is only around
1%

of total budget
23